The Impact of the World Trade Organization on Developing Countries
Established in 1995 and headquartered in Geneva, the World Trade Organization (WTO) serves as a pivotal international organization that replaced the General Agreement on Tariffs and Trade (GATT). Its primary focus is to regulate trade among member countries and ensure that this trade flows smoothly and freely.
The core objective of creating the World Trade Organization was to facilitate international trade freedom, thereby enhancing living standards and promoting the exchange of goods and services among participating nations in line with development goals, while achieving optimal production levels in these countries.
With a continuous rise in the number of developing countries joining the WTO, the total membership has now exceeded 90 nations. However, this membership brings forth both positive and negative implications for these countries. Below, we will explore some of these adverse and beneficial effects:
Negative Effects of Developing Countries Joining the World Trade Organization
The accession of developing countries to the WTO presents several challenges. One major issue is the uneven competition between these nations and more developed countries. This disparity allows developed countries to dominate the global trade arena and build a robust trading system known as the “global trading framework,” primarily aimed at achieving their objectives at the expense of developing nations. Other negative implications include:
- Intense competition in the services sector, including insurance, shipping, and civil aviation, between developing and developed countries.
- Barriers hindering the export growth rates of developing nations, as certain agreements impose restrictions on the exports of select developing countries that possess clear comparative advantages. A notable example is the quantitative restrictions on clothing and textiles exports.
- Reduction of preferential treatment for products from certain developing countries, resulting in their sales occurring in a more competitive global environment.
- Budget deficits or shortfalls in public revenues, driven by rising public expenditure and the gradual decline of tariff revenues, which leads to increased taxes and other detrimental effects on production.
- Rising food prices in developing countries, particularly for net food importers, which negatively impacts their balance of payments due to the gradual removal of subsidies for agricultural producers in developed nations.
Positive Effects of Developing Countries Joining the World Trade Organization
The primary goal for developing countries to join the WTO is to enhance their export opportunities in industrialized markets. These countries are required to adhere to the regulations and conduct standards established by the organization. In instances of non-compliance, disputes can be resolved through a settlement system that compels the stronger party to respect the rights of the weaker one. Here are some additional positive impacts of developing countries’ membership in the WTO:
- Protection of national industries and economies from unfair competition, as well as harmful competition even when deemed fair, through the implementation of safeguard measures.
- Significant reductions in tariff rates in developed nations as a result of benefiting from trade liberalization.
- Lessening of quantitative restrictions in the agricultural sector, particularly in the areas of clothing and textiles.
- Resolution of disputes arising from the enforcement of all agreements, facilitated by the effective system established by the organization.
- Ensured non-discrimination in international trade among different nations, allowing equitable access to each other’s markets.